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Wednesday, February 17, 2010

South Carolina Lawmaker Seeks to Ban Federal Currency

"South Carolina Rep. Mike Pitts has introduced legislation that would mandate that gold and silver coins replace federal currency as legal tender in his state."

This guy's got the right idea, but what he should be doing is advocating for South Carolina to issue its own currency and not be held hostage to a Federal Gov't that is not issuing enough of the nation's unit of account.d This way South Carolina could deficit spend until its economy has achieved full output and employment.

Instead, this idiot is advocating putting his state on a gold standard. I don't know about these South Carolinians??? Calling Mike Pitts stupid would be an insult to stupid people.

"Ban federal currency"? That's rich. This guy is a lawyer? Has he read the Constitution? The federal government is given the sovereign prerogative of being the monopoly provider of the currency. SC doing that would be about tantamount to secession. They tried that before and it didn't turn out so well for them.

Rep. Mike Pitts is onto a good idea, but he hasn’t got it quite right: there is no need to outlaw the U.S.dollar in S.Carolina. His gold coins could perfectly well run alongside the U.S.dollar.

Having two currencies run alongside each other is a bit messy, but it’s not unheard of. It is advocated in an article in the Financial Times by Charles Goodhart as a solution for Greece’s problems. See:http://www.globenews24.com/EN/news,the-californian-solution-for-the-club-med

Another example of two currencies running side by side is this. Once a country decides to join the Euro, Euro notes start circulating in the country concerned long before the official change over date.

Also the currency doesn't need to be gold: you'd need U.S. dollars to buy the gold in the first place. If the State of S.Carolina has unencumbered assets (buildings, land, etc) it could use these to back the currency.

Marshall Auerback wrote in a post-comment that California's effort to issue IOU's was squelched by the federal government. Is it illegal for a US state or municipality to issue a fiat currency and accept taxes in that currency.

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Tom,What if they kept it all electronic and only used it in payment to state vendors? Just created special accounts within the state banking system that vendors could use to pay taxes. Price it in USD. Did not let anyone trade in the credits except regulated banks that could only charge a 0.1% spread?

Matt, I really doubt it would be legal to do anything other than what the Constitution specifies, which is to mint gold or silver coins. The US government knows very well that it's domestic power is tied up in its prerogative of issuance, and I doubt that the Feds would permit it. This is clearly meant as a direct confrontation. I suspect SCOTUS would agree with the Feds. As I read it, SC could mint its own coins, but it could not either ban US currency or set up anything other than what the Constitution specifically allows.

Bill MItchell recently suggested that CA could make the IOU's it had extended legal tender for repayment of its debts, but my sense from reading the feedback his proposal generated was that they could not do even this, but I cannot recall the citations.